Flexible Leases for a flexible market

At the halfway mark of 2021, we find ourselves in a second year of a pandemic that has changed the global business environment forever. Commercial office trends are shifting as flexible leases for a flexible market become more negotiable.

With many employees still working from home and companies carefully returning to on-site business activities at least some of the time, the Cape Town commercial property sector is finding innovative ways to accommodate both property owners and tenants in the post-pandemic economy.

Flexible lease agreements are essential components of flexible working arrangements because they allow landlords to reach out to a greater number of potential tenants without compromising the legal security that comes with the traditional lease agreement.

Let’s take a closer look at the state of the property market and the flexibility required to thrive in the current economy and how rental leases will need to evolve in 2021 and beyond.

Employees are returning to the office – just not yet

With positive news on the vaccination front contrasting with the worrying spread of the Delta variant it’s been a rollercoaster ride in the last few months. While the short-term outlook may be uncertain, there’s confidence that hybrid offices may reopen in the third quarter of 2021 and ‘back to business’ in earnest in 2022.

Many businesses and their employees are planning a return to the office, citing a number of reasons:

Collaboration. Team dynamics are suffering in the COVID era – especially for new employees who haven’t had the benefit of mentorship. As such, there is an opportunity for office-space owners to adapt the office to an environment that allows for both face-to-face and online collaboration.
Productivity. The work from home model simply doesn’t fit every company. Many businesses are suffering significant financial losses as a result of the current work situation.
Client relations. Zoom meetings may be effective, but both clients and their service providers are keen to interact face to face in a safe manner.

This desire to return to the office – at least three or more days per week in the style of Google and other multinationals – is good news for commercial property owners. However, the rental landscape is likely to look very different than it did pre-pandemic.

Flexible working arrangements will last until 2022, and possibly forever in some cases. This means that office space should be redesigned and marketed to a variety of users and not only large corporate tenants.

Shared office spaces, off-grid infrastructure like power and water generation, and enhanced health and safety measures that offer protection from COVID and future pandemics will set successful office premises apart from the competition.

Adapting to a shared office environment

Subdividing your office space is a good strategy to attract short term tenants, but there are several factors to consider before going this route.

Management systems. You’ll need a booking and billing system to ensure that your tenants pay for the time they’ve used. This will also allow you to explore the option of strategic overbooking like gyms and airlines often do.
Amenities and security. Increased foot traffic and more building users mean that you’ll need to cater for busier commercial premises. Workers who’ve been enjoying the comforts of home for the past 18 months have also come to expect better facilities from their office spaces

It’s important to note that a shared office space with multiple short-term tenants is akin to running a hotel. Easier cancellation terms and lower transaction amounts mean that you’ll need to keep feeding new clients into your premises to avoid “dead months” and empty office spaces.

This can be achieved through traditional and – especially – online marketing efforts but will require an investment of both time and capital.

Flexible leases for a flexible market

Just as your premises need to be flexible and accessible, so do your lease agreements. However, that doesn’t mean that you must sacrifice your legal standing when signing a new lease.

It’s essential to sign a lease agreement with every tenant, no matter how short their rental term may be.
Landlords may want to concede some flexibility on deposits and notice periods to attract occupants after weighing the benefits and risks of doing so.
The new PoPIA law, which requires personal information to be safeguarded and only used with the client’s permission, applies to rental agreements too. A comprehensive information policy and designated employee to handle sensitive data may be needed for multiple tenants.

It’s worth noting that while short-term rentals are popular at present, they don’t necessarily offer long-term security and the affordability that the market is looking for. Ready to market your commercial property? So are we.

If you’re looking to position your Cape Town office building for long term success, the Commercial Space team is ready to assist. Contact us today to get started.